We use the concept of "process" constantly in the world of business. We speak of building more customer-friendly delivery processes, enhancing the effectiveness of our sales process, and creating professional development processes for employees that are engaging and grow skills.

One of the things that first struck me about behavioral economics is its potential for helping us create more robust processes by better accounting for and even leveraging human irrationality and fallibility. Only recently, however, did it dawn on me that I was absolutely wrong to believe this. One simply can't apply a set of theories so grounded in human experience to a concept based in 20th century industrial thinking.

Put differently, we need to start recognizing that processes are mechanical and schematic. Building a process is a matter of establishing workflow and linking disconnected cogs. Processes assume that the "work" being done is inanimate and easily subjected to human manipulation, and that the goals of the process can be accomplished through the proper application of theories of efficiency.

The reality, however, is that this idea of process is increasingly irrelevant to the work that most of us do. Our "processes" are not mechanical in nature but rather deeply human. The "work" that is being moved around is in fact the attitudes, beliefs, behaviors, and decisions of other people. Success is defined as successfully influencing, through a series of interrelated activities (that sometimes seem superfluous or wasteful), these decisions and behaviors.

When we come to recognize this, we quickly realize just how inadequate the idea of "process" is for 21st century work. Processes don't impact people. Well-designed experiences do. And designing experiences that profoundly impact people requires an unrelenting attention to the details and nuances of human psychology and subjectivity and a massive amount of creativity that simply aren't required when building a mechanical process that systematically complies with the laws of nature and physics.

How would your world change if you stopped talking about customer-facing processes and started talking about customer experience, if development experiences replaced development processes?

It's time to ditch process. Let's embrace experience.

There are lots of ways to try to answer this question, but here is a great smell test. Look around you and consider to what extent people feel comfortable taking initiative and making decisions in your organization.  Think about yourself, as well. If it's more common, more acceptable, and/or safer to not make decisions and rather do what you're told, you're in an innovation-killing organization.  Get out. Fast.

I recently wrote two SocialEarth posts - one on short-termism in the private sector and another on starvation in the nonprofit sector - that randomly and beautifully came together the other day in the form of Hernando de Soto's book "The Other Path."

"The Other Path," Perverse Incentives, and Social Devolution

Hernando de Soto is a highly regarded and sometimes controversial Peruvian economist who is given significant credit for the downfall of the Shining Path, Peru's Maoist guerrilla group known for its brutal tactics.  

Written in 1986, De Soto's work highlighted the entrepreneurial qualities and aspirations of Peru's poorer urban classes, as well as the mercantilist policies and laws that were preventing these classes, and Peruvian society overall, from prospering.  He brought to light, for example, the amount of time and money required to legally secure land, build a house, and start a business (often years and amounts of money that equated to many times an average salary).

As indicated by its title, "The Other Path" re-framed the struggle of Peru's poor from one of proletarian suffering and revolution (espoused by the Shining Path) to a fight for markets and policies that were inclusive and universally enabling rather than at the service of the politically-connected.  His message resonated and, importantly, gave Peruvians an alternative war to wage in the battle against poverty and inequality.

The other critical lesson to be gleaned from De Soto's work, and the one pertinent to this post, is the following:

When official laws and policies exclude large groups of people or otherwise fail to be relevant to large sectors of society, these excluded groups are given incentives to create their own norms and institutions, in line with their own needs and values, in competition with the formal framework.

We see this all the time in the world around us - both in developing and developed nations.  In the U.S., people who believe in small government find "creative" ways to avoid taxes. Underage individuals nonetheless consume alcohol. Gays and lesbians find churches who will marry them, despite laws that prohibit or do not recognize same-sex marriage. Across Latin America, poor urban families "invade" public and private lands in efforts to acquire property and housing where these are otherwise very difficult to attain. In Peru, according to De Soto's research, street vendors developed complex associations with other vendors to procure high-traffic locations and then protect their presumptive right to these locales, even when laws did not permit such action.

The common thread tying these examples together is the idea that when laws, institutions, and norms fail to stay relevant, people begin to systematically act in illegal ways, their actions justified by moral philosophies that are different and/or more progressive. In instances where the law and institutions eventually adapt, these episodes of illegality are temporary. Society accepts the moral basis for the formerly illegal action, we adapt our laws, and we go back to behaving legally. This was the case with the civil rights movement in the U.S. and is likely to be the eventual outcome of the battle for same-sex marriage. When laws and institutions fail to adapt effectively, however, and when government does not have the means to control illicit behavior, laws lose their legitimacy, illegality in general becomes increasingly acceptable, and whole generations can start to adopt the notion that ends justify means. In other words, if you believe you have just reason for breaking the law, go ahead and do it.

Illegal actions are, indeed, justified by higher-order rights and moral philosophies in certain cases (the U.S. Declaration of Independence, for example, openly promotes revolution in the face of despotism).  However, the "moral drift" that results when laws and institutions fail to adapt and people are left to behave illegally can have disastrous long-term societal consequences and be incredibly hard to recover from.

Creating Another Path for Our Organizations

Okay, so where does that leave us?  

Well, to bring this down to a very immediate and practical (and perhaps more mundane) level, I believe that, as a result of the unrealistic expectations we place on our organizations, both for- and nonprofit, we create incentives for them to behave badly.

In the case of for-profit organizations, our expectation that companies produce greater returns quarter after quarter drives "short-termism" and creates:

• Disincentives to act in environmentally and socially sustainable ways
• Incentives to engage in unethical, "creative" accounting
• Incentives to make questionable business decisions, such as acquisitions that more-often-than-not destroy value

In the case of nonprofit organizations, our unrealistic expectations regarding overhead create:

• Incentives to engage in unethical, "creative" accounting
• Incentives to not give employees adequate  job training and competitive wages
• Disincentives and an often an inability to invest in the sustainable growth of the organization

In these cases, we are the short-sighted lawmakers and government bureaucrats who have failed to adapt. We have created norms and institutions that have failed to keep up with the needs and best interests of our organizations and our societies. And our failure is both inhibiting the creation of a better world and encouraging our leaders to make unethical, undesirable, or simply questionable decisions that become more and more "normal" every day. Time to stop pointing the finger.

We got ourselves into this mess.  What are we going to do to get ourselves out?  How are we going to create new norms and institutions that recognize reality and pull our societies and organizations away from the ledge?

Crutches cast off by those healed at Santurio de Chimayo, Mexico
The idea of "below market returns" has always made me a bit squeamish. For whatever reason, the utterance of the phrase sets off alarms in my brain. Truly, my reaction is quite visceral and 90% negative. For some time, I felt incredibly guilty - like less of a "do-gooder" - for not embracing the philanthropic sentiment that the expressions entails. I felt too hard-nosed, too pragmatic, too business- and market-oriented in my mindset. Recently, I decided to tell the guilt complex in my brain to quiet down so I could think this through a bit more rationally. What I've determined is that I have very good reasons for being suspicious of the idea of "below market returns." Here they are... Flawed Assumptions Underlying "Below Market Returns":

• That a company can't do good by doing good. Or, perhaps, that a company can do OK but should be careful to not do too good, for that would suggest that it's placing financial returns ahead of its social mission.  Also, we seem to assume that making products and services at price points that are affordable to BOP consumers will necessarily lead to smaller profits.  This belies the notion that the BOP is huge and, provided they can reach sufficient scale, BOP businesses are presented with an enormous and very profitable business opportunity.

And, conversely...

• That a company can only do good by doing evil. It seems that the suspicion toward the private sector that has long characterized many non-profits has seeped its way into the social enterprise sector.  For some reason we automatically seem to associate financial gain with greed and unethical business practices.

And also...

• That it's okay to aspire to mediocrity in some aspects of how we manage a business.  This is what really drives me nuts.  Why should any company not strive for excellence in everything that it does?  And, if not in everything, at least those areas that are most critical?  Having a "double bottom line" suggests that both social impact and financial success are crucial to building a strong social business.  So why settle for "below market returns"?!

Assumptions that we must be embracing:

• Financial returns and social good work in tandem. When we believe in and accept this principle, we embrace the idea that employing ethical and sustainable business practices pays off in the long run.  Green practices save money.  Competitive pay and employee benefits attract talent and promote productivity. And being obsessive about customers and their needs - in this case, the needs of BOP consumers - encourages customer loyalty, facilitates customer acquisition, and spurs growth.
• "Profit maximization" will allow us to do more good for more people. Once again, in defense of profit, I want to emphasize that profit maximization plays a massively important role in driving operational efficiencies and overall better business practices, which in turn support scaling and growth. Also, profit as a metric serves as a strong indicator of whether companies are successfully innovating and finding better, more cost-effective ways to  meet customer needs.

Ulitmately, I don't want to suggest that below market returns aren't or won't be the reality for some social businesses. What I'm questioning is the notion that it's OK to have "below market returns" be your point of departure. Social entrepreneurs must aspire to be as, if not more, financially successful as our private sector brethren if we are to thrive. What should be done with the profits that are gained is a discussion we can continue to have. However, we need to put our foot down when it comes not letting the idea of "below market returns" continue to be a crutch that only social entrepreneurs have the privilege of sporting.

A liquor store in my hometown used to (and still does) append all of its ads with, "please use our products in moderation." It was a nice gesture from a social responsibility standpoint, and I was reminded of the tagline recently when pondering innovation.

I'm starting to believe, largely as a result of very-intense and self-involved introspection, that too much innovation can be a bad thing. "Heresy!" you say (if you are of the entrepreneurial ilk, that would be the right answer). Before you get all bent out of shape, let me explain. Innovation within an industry or society we generally consider a very good thing. I still believe this to be true. Technological progress, broadly defined, is the cornerstone of economic growth. Industries, cities, societies that innovate thrive. So let's take innovation in aggregate off the table. Innovation within an individual organization or person, however, can quickly become counter-productive. Take gastronomy as an example. Let's suppose that you make the sage decision to create a new and exciting dinner every single evening. No recipe will be repeated and cookbooks are only allowed if modifications are made to the written word. Now imagine the amount of planning and stress that would be associated with such an endeavor. Not only would your culinary aspirations distract from other important tasks, but you'd lose the "economies of scale" that come with cooking similar meals (or eating leftovers), and you'd also probably never get really good at any given menu item because of your reluctance to iterate and make minor tweaks. Minor tweaks are not especially sexy or exciting. For that matter, neither are leftovers (except really good stews, which always seem to taste better the second day). However, they are the stuff of disciplined execution on great ideas, which is what big-time innovators can be absolutely terrible at. If you're an ideas person like me, you may very well read so much and take in so much information over the course of a day that your world is made up more of possibilities than realities. You sometimes have a difficult time settling down your mind enough to do make detailed to-do lists, set concrete goals, and prioritize your work. If that's you or your organization, an overdone propensity for innovation may be officially kicking your ass. As you think about this, here are two points of verification that might prove helpful. 1) Wendy Kopp's NY Times Corner Office interview. It's a fabulous interview - read it! Wendy is very clear that focus had to triumph over innovation early in Teach for America's life in order for the effort to really take off. 2) Remember that the net impact of innovation is positive, but that the process of innovating is NECESSARILY wasteful. Don't take my word for it. Jeff Bezos once compared the internet boom and bust of the early 2000's to the Cambrian Explosion that took place 500 million years ago.  The "explosion" of diversity in animal life was a major step forward for the earth, but can't be viewed as such without also considering the mass extinction that took place fifty million years later that allowed the fittest (and luckiest) species to really thrive. So, to paraphrase Happy Harry's, if you want to be successful at a personal or organizational level, "Please Use Your Innovation in Moderation."

Nancy Lublin from Do Something wrote a great column in this month's Fast Company on overhead as the bogeyman of the non-profit sector. She's right.  There is nothing inherently evil about overhead.  Of course, some types of overhead are wasteful (think: auto execs, private jets, and Obama).  However, other overhead is good and extremely worthwhile. IT spend in a telecommunications company, for example, is not only necessary but can be a source of strategic differentiation if applied appropriately (think: 3G). My day job is in HR and leadership consulting.  There, we struggle with this issue on a regular basis. While "people are our greatest asset," they show up in only one place on the financial reports.  That would be under expenses.  So how do we tend to manage people?  That's right, as liabilities. The good news is that the earth is moving in HR.  Companies are finding increasingly accurate ways to measure  the productivity and capacity of the workforce as opposed to just payroll expesnse. Let's hope that we start to see a similar shift in the NGO world.  Because simply viewing overhead as a necessary evil is not only flawed thinking but can severely constrain our organizations in their ability to grow and more effectively serve their constituencies.